Monetary Policy and Stock Market Liquidity in Emerging Market Economies

Abstract

In the era of globalization, the financial systems of all countries have faced severe challenges and their negative impacts such as overheated economy, high inflation, stock market crash, financial crisis, and other financial collapses. It has raised significant concerns influencing the effects of macroeconomic policies and responses of the financial system of each country all over the world even in normal times and turbulent times in various respects. And stock markets in emerging market economies are no exceptions. Indeed, it is proven by more and more studies that have been implemented to assess stock market liquidity in emerging market economies in different periods and the impacts of certain macroeconomic drivers on monetary policy. This study aimed to systematically review the literature on monetary policy and stock market liquidity measures and how monetary policy affects stock market liquidity. The study summarized the essential findings and approaches in the extant literature. Numerous reputable academic databases were used via a systematic methodology of literature review. Generally, this study sheds light on the crucial macroeconomic role of monetary policy as a potential determinant of stock market liquidity in different timelines. Recommendations and theoretical discussions given by researchers provide an overall review of the relationship between monetary policy and stock market liquidity in emerging market economies.